MarketView for January 13

Summary

Wall Street sort of hit the skids on Monday, as mounting negative pre-announcements left a lackluster profit growth outlook. Wall Street has seen a slow start to the year following a phenomenal 2013. After the S&P 500's rise of almost 30 percent last year, its forward price-to-earnings ratio is the highest in nearly seven years and investors are weighing the risk of paying such a high premium for earnings that may see growth stall.

Almost 10 out of every 11 earnings pre-announcements for the current earnings season from S&P 500 companies have lowered estimates, according to Thomson Reuter’s data. Companies that posted weak earnings or forecasts on Monday included SodaStream, Lululemon, Express, and Aaron's. Wall Street lost no time in punishing those stocks. Lululemon sank 16.6 percent to $49.70, while Express fell 4.6 percent to $18.15; Aaron's lost 6.8 percent to $27 and SodaStream plunged 26 percent to $36.94.

Investor anxiety translated into a willingness to pay more for insurance against a drop in the S&P 500. The CBOE volatility Index was up 9.4 percent to 13.28 in its largest daily percentage increase in a month. Nonetheless, the VIX does remain at very low levels historical.

Wendy's outlook was one of the few bright spots on Monday, sending that company’s shares up 6.4 percent to $8.98 after the fast-food restaurant chain estimated adjusted quarterly earnings well above expectations.

In M&A news, Beam agreed to be acquired by Suntory Holdings Ltd for $16 billion, including debt. Shares of Beam ended the day up 24.6 percent to close at $83.42.

After the closing bell, Google agreed to acquire Nest Labs for $3.2 billion in cash. Google edged up 0.6 percent in after-hours trading.

Volume was above average, with about 7.1 billion shares traded on the three major equity exchanges, compared with the 6.44 billion share average so far this month, according to data from BATS Global Markets.

December Budget Surplus a Record

Last month the government recorded the largest budget surplus for any December on record, a number that saw an increase in payments from government-controlled housing finance giants Fannie Mae and Freddie Mac..

The mortgage-finance companies, which were propped up by $187.5 billion in taxpayer money after they were placed under government control in 2008, made hefty dividend payments last month in return for the support they received.

Those payments helped the government take in $53 billion more in revenue in December than it paid out, the Treasury said on Monday.

Under the terms of the bailout for Fannie Mae and Freddie Mac, the government gets a majority of the companies' quarterly profits. The two companies made payments to the Treasury totaling $39.57 billion at the end of last year.

For the first three months of the budget year, the Treasury posted a deficit of $173.6 billion, down 41 percent from the $293.30 billion shortfall from October through December 2012.

Overall, government spending fell 8 percent to $838.20 billion in December. The payments from Fannie Mae and Freddie Mac help reduce spending, and are not included in total revenues.